The Changing Face of Accelerators, the Travel Industry and Startup Opportunities

Dan Peltier, Skift

- Aug 30, 2016 7:00 am

Skift Take

Artificial intelligence and messaging are the trends of the day that many startup accelerator programs are interested in but there is also plenty of opportunity for aviation-oriented startups, in particular, to swoop in and command the attention they deserve — and airlines desperately need their help.

— Dan Peltier

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Startup accelerators have shelled out billions of dollars in funding and provided mentorship to some of the most successful Internet companies to date, including several travel startups such as Airbnb. Some accelerators, though, say the term “accelerator” carries the stigma of funding first and guidance and mentoring second, and have moved away from it.

Accelerators aren’t for every startup and many founding teams emerge from them no better than when they entered. There are more than 200 accelerator programs worldwide that have worked with more than 6,200 startups, according to accelerator data site Seed-DB. They’ve given more than $18 billion in funding and received more than $5 billion from more than 800 exits. Some 30 of the 235 accelerators on Seed-DB’s list have “accelerator” as part of their names.

Those figures may seem impressive in terms of the amount of funding delivered but there can be a substantial number of failures — as the number of exits indicates. For Techstars, a leading accelerator, more than 10 percent of its startups fail on average and other top accelerators have similar failure rates. That figure would be far lower than startups in general.

“I know a lot of startups that after being part of an accelerator for three or four months went back to the co-founders’ garage or basement and continued working from there,” said Mor AviHanan, head of venture development at El Al’s Cockpit Innovation Hub, which along with JetBlue Technology Ventures funds and supports their collaborate incubator Navigator. Both El Al and JetBlue’s own incubators launched earlier this year.

“I don’t like the term accelerator,” says AviHanan. There has to be something with an accelerator that makes it another step to the top drawer of their business, that’s what we’re trying to do.”

Navigator gives startups $50,000 up-front for six percent equity and are “open to more rounds down the road” if companies have made business connections other progress, “We’ll also support them for an additional eight months after the program with office space in both Tel Aviv, Israel and Silicon Valley. We don’t give them $50,000 and say ‘goodbye.'”

Blue Startups, a Honolulu, Hawaii-based accelerator, initially gives startups $25,000 for three to 10 percent equity. Companies can receive up to $75,000 in additional funding once they complete the program.

Both Navigator and Blue Startups’ funding terms are typical for accelerators as many give $50,000 to $100,000 in funding.

But the initial funding shouldn’t be the reason for joining an accelerator, said Jared Kushi, program director for Blue Startups. “If you’re coming for just the funding, we don’t really want you,” Kushi says. “You’re required to be in our office for 14 weeks and it’s very hands-on. That $25,000 we give startups usually goes to travel and expenses in Hawaii because many teams are coming from far away to get to us.”

Kushi and the Blue Startups team have vetted about 300 applications for each of its seven classes so far with its latest cohort starting in October. They whittle the list to 30 for final round interviews and choose six to 10 companies for the 14-week program in Honolulu. “The goals for the end of the program are different for every company,” Kushi says. “Coming into the program most have already gone to market and are looking to scale up and some have raised a couple hundred thousand dollars. We’ve found that the more far along they are the more they get out of the program.”

Startups shouldn’t view accelerators as an easier path to obtaining venture capital, although accelerators often open doors to venture capitalists. But with the hundreds to thousands of applications each accelerator receives per round or class there is plenty of competition for additional funding even if your company makes it into the accelerator.

The Amadeus for Startups program, for example, has several hundred startups in the pipeline at any given time but prefers not to think of itself as an accelerator, says Kerri Zeil, director of Amadeus for Startups North America.

JetBlue Technology Ventures states it had interactions with 628 startups since launching in February, made investments in Flyr and Mozio, and has 14 more investments in the pipeline representing companies that “span the entire travel journey.”

Travel Out of Favor For Accelerators?

Glancing at major accelerator’s websites reveals that startups outside travel far outnumber travel startups. 500 Startups, one of the world’s largest startup accelerators, shows only five examples of travel startups it’s funded compared to other industries with dozens of examples.

Zeil pointed out that there aren’t many accelerators specifically focused on travel. She says about 60 percent of the 45 startups that have participated in Amadeus for Startups since it launched in May 2015 had backgrounds in the travel industry but 40 percent came from outside of travel and she anticipates that percentage will grow.

Kushi said about 10 to 20 percent of companies Blue Startups works with are travel companies.

This week The New York Times reported that larger companies and multi-billion dollar players like Airbnb and Uber have still attracted healthy amounts of venture capital this year but that smaller companies are finding resistance to additional funding unless they are profitable.

Matt Johnson, a partner at 500 Startups, says travel has been out of favor for awhile in the venture capital community. “There’s sort of been a perception for the longest time that there wasn’t a lot of new innovation in travel and there were several entrenched competitors. Every new travel startup was some small, interesting idea maybe around helping someone book a flight, for example. It’s hard to carve out a brand for yourself in travel.”

In addition, the complexity of the travel industry, with its overlapping relationships involving both partnerships and competition, can be difficult for investors outside the travel industry to understand.

Johnson says however, that narrative is changing. “Recently we’ve seen a lot of interesting business model innovation in general, not just in travel, and some of those business models have been ported over to travel. Companies that have similar models to Airbnb, for example, with really interesting economics in the travel space. I think before the affiliate or marketplace business model was not very interesting and had a lot of entrenched competitors and it just wasn’t exciting to venture capitalists and now that’s changing.”

Some investors remain wary of travel, Johnson says. “But what’s interesting is that’s because venture capital is a business of exception and maybe that makes it the best time for an entrepreneur with a breakthrough idea.”

All accelerators Skift spoke to for this story pointed to artificial intelligence, virtual travel agents and messaging as areas they’re particularly interested in. A few, including Johnson, cited virtual travel agent startup Lola for its focus on technology. Johnson feels the corporate travel space has the most need for virtual travel agents because of the disconnect that exists with travel management.

On the other hand, the aviation startup community, or lack thereof, is one that startups have long ignored, although there has been recent activity with flight-sharing and private jet travel. “A lot of companies don’t think to approach the air travel industry,” says AviHanan. “It seems like financial tech and cyber solutions don’t think to approach air travel but we want financial tech and cyber solutions to come to aviation. There are so many opportunities for them there.”

Most entrepreneurs don’t know how to approach aviation, says Bonny Simi, president of JetBlue Technology Ventures, “If more people see that you can actually crack the code I think we’ll see more interest in that area. The Department of Homeland Security has opened up a Silicon Valley office, which a lot of people don’t know about, to give funding to startups and solve aviation’s problems and we’ve partnered with DHS.”

New Lessons For Startups

The venture capital mantra of shifting from consumer-facing to B2B when founders realize it’s too difficult to get consumers to use their app or get repeat business has been the trend for years. Kushi said Blue Startups is “gun shy right now on the B2C side and we’re trying to get startups more focused on the B2B side.”

Though Johnson and Zeil said in their experiences at 500 Startups and Amadeus for Startups, respectively, it’s been less about pivoting from one model to the other as it’s been about repositioning or expanding upon the original idea.

“We know that the big guys are out there and it’s hard to compete with them and startups of course realize this too,” said Zeil. “But now we’re asking ourselves how can we support the notion that ‘the big guys are out there’ and approach an idea differently so that it has a better shot.”

U.S. entrepreneurs tend to complicate their ideas and products, said Kushi, “Asian startups that come through our program in general seem to keep their ideas much more simple. They know what the pain and need is and then they slowly add on new features.”

Kushi said he and his team coach startups on exit strategies but discourage founders from obsessing about them, “Having an exit strategy is extremely important because without an exit it’s essentially a lifestyle. But you shouldn’t change your company to fit that form. The real exits are those that come to you. Don’t move your focus from creating a quality company.”

Future of Accelerator Programs

Many travel companies are likely watching JetBlue, El Al and Amadeus’ programs and mulling whether to start their own accelerators. Some companies, like American Airlines, claimed to have launched an investment program for startups in 2013 but American later said it was helping startups with free flights, marketing and make connections.

One challenge for JetBlue, Amadeus and other travel companies that decide to throw their hats into he accelerator arena is how to balance the ethics of mentoring and funding startups while also making acquisitions themselves.

Amadeus, for example, made a handful of travel acquisitions in 2015, including AirIT and Navitaire, though neither were part of the Amadeus for Startups program and reservations system Navitaire was actually more than 20 years old. Amadeus is also announcing a partnership this week with trip-planning and booking site Relovate, which went through the Amadeus startups program. Beyond the Amadeus for Startups program, Zeil said venture capitalists occasionally refer startups to Amadeus. But she says that process has no correlation to the startups program — and many travel startups know that companies such as Amadeus, the Priceline Group, Expedia, TripAdvisor and Google are among the usual suspects when it comes to acquisitions in travel.

Silicon Valley remains a focal point for startups — but there’s a whole world out there and it’s definitely not the only place a startup can go to garner attention.

Blue Startups, located in Honolulu and halfway between Asia and the continental U.S., is a prime example. The program is bringing in investors from all over Asia and the U.S. and views its location as a great advantage in trying to connect ideas, startups and investors from two continents, “We began spearheading the startup paradise movement when we started three and a half years ago,” says Kushi. “We’re not trying to be San Francisco of course, but maybe we’re trying to be the next Boulder, Colorado, for example.”

Simi says JetBlue Technology Ventures’ main focus is on Silicon Valley, New York and Tel Aviv and the program will partner with Cornell University’s new Cornell Tech campus on Roosevelt Island in New York City.

The JetBlue Getaways vacation-package program is one of the main reasons JetBlue Technology Ventures is focused on the entire travel journey, Simi says. “I wouldn’t be surprised if we make an investment in a tours and activities startup in the future. In a few years from now we want people to think about JetBlue for all aspects of travel, not just their flight. We don’t compete against venture capital and we’re getting lots and lots of referrals from VCs.”

As more corporate startup programs come online to target certain verticals or regions — and whether they choose to call themselves an accelerator or not — the end goal is to keep in touch with startup and technology trends and to advance the needs of the corporation, where applicable.

If the accelerator advances the hopes and dreams of startup entrepreneurs along the way, then that’s all the better.

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